Posts on ‘September 24th, 2006’

HONG KONG (XFN-ASIA) - Royal Dutch Shell PLC managers are mulling legal options if the company is unable to resolve the Sakhalin-2 project issue with Russian authorities by other means, the Wall Street Journal reported in its online edition, citing people familiar with the matter.

Last week, Russia’s ministry of natural resources pulled a key environmental permit for Shell-led consortium’s oil-and-gas project on Russia’s Sakhalin island.

Work on the project has not stopped, and Shell said it has not been formally notified that the permit has been cancelled.

Shell’s managers have struggled to create a dialogue with authorities on the matter, both in Moscow and Sakhalin Island, the Journal said, adding that the company is considering its legal options if it is unable to resolve the issue through other means.

‘All options are open,’ including legal ones, the paper cited a source familiar with Shell as saying. Other options include discussions with the Russian government or the use of diplomatic channels, after authorities in the UK and the European Union criticized the Russian move.

A spokesman for Sakhalin Energy Investment Co, the venture managing the project in which Shell owns 55 pct, declined to comment, saying ‘nothing has changed’ since earlier statements, the paper said.

A Shell spokeswoman was quoted as saying that she had ‘no knowledge’ about legal options being considered and that the company does not comment on private meetings.

Japan’s Mitsui and Co and Mitsubishi Corp hold 25 pct and 20 pct stakes respectively in the Sakhalin-2 project.

rc/

· Downing Street and US express concerns
· Report lists mounting problems of gas project

Terry Macalister
Monday September 25, 2006

Britain has raised concerns with Vladimir Putin, Russia’s president, over last week’s withdrawal of Shell’s permit to develop the $20bn (£10bn) Sakhalin-2 energy project, suggesting the move could spark a diplomatic row.

Approval by the Russian natural resources ministry for Shell’s liquefied natural gas project on Sakhalin island, in the far east of the country, was abruptly withdrawn last Monday on environmental grounds. A Downing Street spokesperson said yesterday: “The government is raising its concerns about the decision with the Russian government. Downing Street is following this very closely.”

The US state department is also concerned. The move, to halt work on the world’s largest LNG project, was widely interpreted as an attempt by Russia to wrest back control of its natural resources from western oil companies. It sparked harsh words from the European commission and Japan.

The authorities also targeted the US oil group ExxonMobil, which runs Sakhalin-1 on the island, late last week, saying they would not allow it to expand the project. Campaigners from the Bankwatch group, a network of environmental groups in 11 countries, say Russia was right to stop environmental and other abuses at Sakhalin which had been going on for far too long.

Fears have been expressed for the Pacific grey whale which swims in the waters around Sakhalin. Bankwatch also argues that Shell should receive no funding from the European Bank for Reconstruction and Development, on the grounds that it is breaking bank rules by presiding over rising levels of crime and HIV.

Greig Aitken, of Bankwatch, said: “Russian and international environmental organisations have, for several years, documented the same pattern of violations cited by the Russian government, as well as a range of others that all have a grim bearing on an island that depends on fishing for one third of its economy.

“If there is talk of Russia asset-grabbing as it carries out its right to, belatedly, defend its environment, it should not overshadow the asset-grabbing Shell is attempting in the form of billions of dollars of international taxpayers’ money for a project it has been unable to get right for the last three years.”

A report issued by Bankwatch today talks of mounting problems on Sakhalin. It says the arrival of 5,000, mainly male, construction workers has led to increased poverty for local communities, particularly women. “The gender-specific negative impacts, presented in the report, range from anxiety about the safety of children due to increased heavy traffic, to rising crime levels, sexual harassment and violence against women. Furthermore, it reveals trafficking of women and increased prostitution and HIV/Aids,” says Bankwatch.

The EBRD says in a newsletter: “The first priority in addressing social issues is that our projects do not adversely affect anyone, especially vulnerable groups.”

Bankwatch believes Russia has been wrongly characterised in the reports of the standoff with Shell. It notes that the government demanded that one of its own oil companies, Transneft, reroute a vital pipeline to avoid environmental degradation near Lake Baikal at a $1bn cost.

State-owned Gazprom is pushing Shell to sell it a 25% stake in Sakhalin-2 in return for some Siberian assets. The threat that Sakhalin-2 might be halted as a result of the permit being withdrawn was seen as a way of putting more pressure on Shell to sell. Shell would not comment.

http://business.guardian.co.uk/story/0,,1880102,00.html?gusrc=rss&feed=1

By Ariane Bernard
Published: September 24, 2006
 
PARIS France, Germany and Russia met during the weekend, discussing a number of contentious business topics as Russia tried to quiet European unease over its investment in the European aerospace consortium EADS and play down recent problems with Western oil companies operating in Russia.
 
President Vladimir Putin of Russia met with President Jacques Chirac of France in bilateral meetings on Friday evening, and Chancellor Angela Merkel of Germany joined the two on Saturday for talks at a castle north of Paris.
 
“Concerning the acquisition of a 5 percent stake, I can appease you all by telling you it is not at all the sign of an aggressive behavior on the part of Russian partners,” Putin said Saturday. “We will not use this stake to change in any way the institutional situation of EADS.”
 
Earlier this month, a Russian state- controlled bank bought a 5.02 percent stake in EADS, the parent company of Airbus, and Russian officials indicated then that the government hoped to increase its stake. But EADS and Thierry Breton, the French finance minister, subsequently rebuffed speculation that Russia might gain a position on the board of the European consortium.
 
The Russian government is also squabbling with the French oil giant Total over the Kharyaga oil field in Northern Russia, with the authorities indicating that Total may lose its license, although Putin told reporters in Paris on Friday that “the rumors” about Total losing its license in Kharyaga “were greatly exaggerated.”
 
An Élysée Palace spokesman indicated that Putin’s reassurances were considered solid guarantees for France’s investments in Russia.
 
Dissent has grown in recent months between the Russian authorities and Western oil companies, among them Royal Dutch Shell and Texas-based ExxonMobil, as Russia is disputing some of its production-sharing agreements that were entered in the early 1990s at a time when oil prices were low and Russia lacked the investment capability to exploit its resources on its own.
 
On Friday, Russia announced that it had granted a license to the Russian group Rosneft to exploit an oil field adjacent to ExxonMobil’s Sakhalin-1 site in Eastern Russia, despite Exxon’s filing for the field on the basis that the company considered that it fell within its licensed area. Putin did not publicly address the disagreements over Exxon’s claims or Shell’s recently losing a license to carry out work at the Sakhalin-2 site.
 
Instead, Putin reassured Western countries that he appreciated the co-dependent nature of energy suppliers and consumers. He also indicated that it was “very much a possibility” that some oil resources be redirected to Europe.
 
Merkel insisted on the need for “reliable partners,” between Europe and Russia, in energy matters. The European Union has sought without success since 2000 to install an energy charter treaty on energy with Russia, an arrangement that would open its market and ensure stability in fossil fuel supplies to Europe.
 
Putin also announced that he had signed on Friday two “memoranda of understanding,” which act as blueprints for potential contracts, representing more than $10 billion.
 
One of the agreements, entered between the Russian Transportation Ministry and the French construction giant Vinci, concerns plans for a highway between Moscow and St. Petersburg. The other memorandum, between the Russian and French transportation ministries, look at possible cooperation on railroad, transportation and infrastructure in Russia, the Élysée said.
 
In addition to business matters, the three countries discussed current diplomatic issues, and Putin said on Saturday that Russia was ready to send “a small deployment of Russian military engineers” to Lebanon.
 
 PARIS France, Germany and Russia met during the weekend, discussing a number of contentious business topics as Russia tried to quiet European unease over its investment in the European aerospace consortium EADS and play down recent problems with Western oil companies operating in Russia.
 
President Vladimir Putin of Russia met with President Jacques Chirac of France in bilateral meetings on Friday evening, and Chancellor Angela Merkel of Germany joined the two on Saturday for talks at a castle north of Paris.
 
“Concerning the acquisition of a 5 percent stake, I can appease you all by telling you it is not at all the sign of an aggressive behavior on the part of Russian partners,” Putin said Saturday. “We will not use this stake to change in any way the institutional situation of EADS.”
 
Earlier this month, a Russian state- controlled bank bought a 5.02 percent stake in EADS, the parent company of Airbus, and Russian officials indicated then that the government hoped to increase its stake. But EADS and Thierry Breton, the French finance minister, subsequently rebuffed speculation that Russia might gain a position on the board of the European consortium.
 
The Russian government is also squabbling with the French oil giant Total over the Kharyaga oil field in Northern Russia, with the authorities indicating that Total may lose its license, although Putin told reporters in Paris on Friday that “the rumors” about Total losing its license in Kharyaga “were greatly exaggerated.”
 
An Élysée Palace spokesman indicated that Putin’s reassurances were considered solid guarantees for France’s investments in Russia.
 
Dissent has grown in recent months between the Russian authorities and Western oil companies, among them Royal Dutch Shell and Texas-based ExxonMobil, as Russia is disputing some of its production-sharing agreements that were entered in the early 1990s at a time when oil prices were low and Russia lacked the investment capability to exploit its resources on its own.
 
On Friday, Russia announced that it had granted a license to the Russian group Rosneft to exploit an oil field adjacent to ExxonMobil’s Sakhalin-1 site in Eastern Russia, despite Exxon’s filing for the field on the basis that the company considered that it fell within its licensed area. Putin did not publicly address the disagreements over Exxon’s claims or Shell’s recently losing a license to carry out work at the Sakhalin-2 site.
 
Instead, Putin reassured Western countries that he appreciated the co-dependent nature of energy suppliers and consumers. He also indicated that it was “very much a possibility” that some oil resources be redirected to Europe.
 
Merkel insisted on the need for “reliable partners,” between Europe and Russia, in energy matters. The European Union has sought without success since 2000 to install an energy charter treaty on energy with Russia, an arrangement that would open its market and ensure stability in fossil fuel supplies to Europe.
 
Putin also announced that he had signed on Friday two “memoranda of understanding,” which act as blueprints for potential contracts, representing more than $10 billion.
 
One of the agreements, entered between the Russian Transportation Ministry and the French construction giant Vinci, concerns plans for a highway between Moscow and St. Petersburg. The other memorandum, between the Russian and French transportation ministries, look at possible cooperation on railroad, transportation and infrastructure in Russia, the Élysée said.
 
In addition to business matters, the three countries discussed current diplomatic issues, and Putin said on Saturday that Russia was ready to send “a small deployment of Russian military engineers” to Lebanon. 

Monday, September 25, 2006. Issue 3504. Page 6.

Rosneft will win a license to explore for oil and gas at an offshore area bordering ExxonMobil’s Sakhalin-1 project in the Pacific Ocean.

Rosneft was the only company to apply by the Sept. 14 deadline to take part in a planned auction of the license for the Lebedinsky field, Nikolai Gudkov, a spokesman for the Natural Resources Ministry, said Friday by telephone. That means the auction will be canceled and the license awarded to Rosneft, he said. (Bloomberg)

By: Tim O’Brien,
Published: Sep 23, 2006

Shell E&P Ireland, which is developing the Corrib Gas project, has in the last few days invited the principal opponents of the project to new talks.

Shell E&P managing director Andy Pyle said yesterday that the company had written to Dr Mark Garavan, of the Shell to Sea campaign, seeking dialogue on a new route for the onshore pipeline. The company is planning to resume work on the Bellanaboy terminal site as early as next week.

Mr Pyle said that the company had “no intention of getting involved in any civil actions” against protesters and he hoped that any protests “would be peaceful”.

Pressed on reports of possible future involvement by Bord Gais, Mr Pyle said that the State company had valuable experience and was involved in discussions with Shell E&P which “were very helpful”.

The company had produced an indicative timetable, based on the project moving ahead smoothly. This envisaged preparatory seasonal work at Bellanaboy, starting this month, with peat removal from the site resuming in the spring of 2007. Construction of the terminal would begin in autumn 2007 and would continue for about two years.

Gas could be flowing from the Corrib field by 2009. It is estimated that it could supply 60 per cent of the State’s requirement at its peak and would gradually decline over 15 years. The project cost to Shell and its partners was about 900 million, a “good half” of which had already been spent.

By Arkady Ostrovsky in Moscow, David Wighton in New York and Ed,Crooks in London

Published: September 23 2006 03:00 | Last updated: September 23 2006 03:00

Margaret Beckett, the UK foreign secretary, has warned that Russia’s threat to the future of the Sakhalin-2 project run by Royal Dutch Shell was the sort of move that “shakes confidence in foreign investors”.

She told the Financial Times she had raised the issue with Russia’s foreign minister at the UN meeting in New York this week.

Jan Peter Balkenende, Dutch prime minister, has sought an explanation from President Vladimir Putin for Russia’s tough line on the oil and gas project.

Earlier, senior Japanese and British officials criticised Russia for its heavy-handed approach. The US State Department said yesterday it was “very concerned” by Russia’s threat to revoke the environmental permit for Sakhalin-2.

Russia’s Ministry of Natural Resources this week cancelled the permit, which could lead to suspension of an exploration licence. The crackdown on Sakhalin-2 came after Shell doubled the estimated cost of the project to $20bn, rousing the Kremlin’s ire.

A spokesman for the Ministry of Natural Resources yesterday accused Shell of applying diplomatic pressure on Russia, rather than addressing the real problem. He said Russia had no intention of stopping oil and gas production from Sakhalin-2 or terminating the production-sharing agreement.

Rinat Gizatulin, a spokesman for the ministry, said the suspension of the permit was designed to put pressure on Shell to rectify its environmental breaches.

“As for now, we have no justification for revoking the licence from Sakhalin energy [a consortium which operates Sakhalin-2],” said Mr Gizatulin. But he added that such justification might arise on January 1 if Shell fails to fulfil the terms of the licence and start producing from one of the fields. He said the ministry’s lawyers had concluded that a licence could be revoked without breaking a production-sharing agreement.

The suspension of the Sakhalin-2 licence was supposed to be brought into force this week after being stamped by another federal agency responsible for industrial safety. But the agency, Rostekhnadzor, yesterday issued a statement saying it was not authorised to grant the request from the Ministry of Natural Resources. Then it swiftly retracted its statement, saying it had been sent in error. Observers said this suggested a crackdown on Shell was part of Russia’s hard-ball negotiating tactic with the company.

Gazprom, Russia’s state gas monopoly, wanted to take a 25 per cent stake in Sakhalin-2 project through an asset swap but suspended talks after Shell raised the cost of Sakhalin-2 to $20bn.

*Mr Putin, arriving in Paris for dinner with French President Jacques Chirac, yesterday said the rumour that Russian authorities could withdraw the licence for Total, the French oil group, to operate the Khar-yaga natural gas field in the Arctic Circle was “exaggerated”. “I want right away to reassure you. The rumours of withdrawal of licence for the company [Total] are exaggerated at best,” Mr Putin said.

Copyright The Financial Times Limited 2006

24.09.2006
 
UNITED NATIONS, September 24 (Itar-Tass) - Russia wants its partners in the Sakhalin-2 oil field development project to fulfill their obligations to this project and not violate them, Russian Foreign Minister Sergei Lavrov said on Saturday.

He pointed out that “many environmental obligations were violated.”

“The initial cost of the project was doubled. Higher the costs, later Russia will be able to get profits from this agreement,” he said.

“Why the incidents on BP’s pipelines that caused global violations of environmental norms were perceived as violation,” he asked. “The suspension of BP’s activities on Alaska raised no question. The same approach should be taken to the situation on Sakhalin,” Lavrov said.

Published: Sunday, 24 September, 2006
 
MOSCOW: Russian government pressure on a Shell-led consortium developing vast oil and gas fields in the Pacific Ocean could set back Moscow’s hopes of becoming a key energy exporter to Asia, observers have said.

The possibility that the dispute could delay planned deliveries from the fields to Asia beyond 2008 is “the understatement of the year”, said Adam Landes, energy expert at the Moscow-based Renaissance Capital investment bank.

“To all extents and purposes the project is paralysed by the decision adopted yesterday. What the investors are facing is re-negotiation or paralysis,” Landes said.
On Monday, Russia revoked an environmental permit for the Sakhalin-2 project, halting work on natural gas infrastructure that is a key part of Moscow’s plans to boost oil and gas exports to energy-hungry Asian markets.

The $20bn project (15.8bn-euro) project is the largest foreign investment in Russia and the world’s biggest privately funded energy venture.

Russian authorities said obtaining a new permit could take six months or more and officials are calling for broader changes to the project’s production sharing agreement (PSA) with the government.

Sakhalin Energy, which is 55% owned by Dutch-British oil giant Shell and 45% by the Japanese firms Mitsui and Mitsubishi, implicitly warned that Russian pressure could damage international links.

“We will continue to work with the Russian authorities to resolve the issue and thereby maintain confidence of international customers in Japan, Korea and North America,” the company said in a statement.

However, revoking the permit “could be damaging for the project and for Russia and lead to delays in project development,” the statement said.

Sakhalin Energy, which is building Russia’s first liquefied natural gas (LNG) plant off the island of Sakhalin in the Russian Far East, has already signed agreements to sell LNG to Japanese energy companies.

Increasing Russian energy links with Asia has been a key goal for President Vladimir Putin. – AFP
 

Lisa Buckingham,
24 September 2006

Why Lord Browne fought –unsuccessfully - to stay at the helm of BP long after the company’s compulsory retirement date of 60 is anyone’s guess.

It was an ignominious tussle with his chairman, Peter Sutherland, and one that resulted in him getting only a few months extra in the top job.

But even as unseemly briefings by ‘friends’ of both men were given gleeful coverage in the financial Press, BP appeared to be unravelling faster than a ball of wool in the paws of a kitten.

To say that BP, once one of our most admired companies, has had a torrid year or so is an understatement. It suffered the worst refinery fire in the industry’s history last year when 15 people died and hundreds were injured in Texas.

Its giant Thunder Horse platform in the Gulf of Mexico was badly damaged by Hurricane Dennis and production will now come on stream in 2008 - two years late.

Several of its commodity traders in America were accused of trying to manipulate the propane gas market. The US authorities also announced an investigation into its trading in crude oil and gasoline between 2002 and 2004.

And it was forced to shut production at Prudhoe Bay in Alaska after the discovery of severe corrosion in the pipes. It then emerged that senior BP executives had been warned repeatedly by employees that maintenance at Prudhoe Bay was not up to scratch, yet these alarms were, somehow, ignored.

Browne is resisting pressure to put in a personal appearance at hearings in the US into some of the group’s alleged failures. These have incensed politicians on Capitol Hill, where BP’s laudable refusal to make the political contributions routinely expected from oil majors means he has few friends to call on in times of need.

The company is, of course, a gigantic enterprise and wildcat fires can be expected in far-flung reaches of its empire. But the coincidence of bad news suggested something might be rotten at the heart of the edifice that Browne built.

Shareholders, with whom BP has in recent times enjoyed the best of relations, let it be known they were seeking one-to-one meetings with the company’s diminutive boss to satisfy themselves that things were not as bad as they appeared.

There were signs of hope late on Friday when BP said it was about to bring parts of Prudhoe Bay back into operation.

And, though it is arguably a year late in coming, Browne has now ordered a top-to-bottom overhaul of the company’s safety and environmental procedures, similar in scale to the rethink undertaken by Exxon after its tanker, the Valdez, caused one of the worst oil spills.

The operation to clean up the damage in Alaska is likely to take up to a decade. But by that time Browne will be long gone.

What a pity that the man who has year-in, year-out been voted Britain’s most-admired business executive will spend his final days at BP fighting fires. And what a terrible misjudgment to have sought to extend them.

By Hannah Gardner

Sept. 24 (Bloomberg) — Russia is not considering pulling out of the Sakhalin-2 project with Royal Dutch Shell Plc, Russian Foreign Minister Sergei Lavrov said in comments released today.

“We are a long way from backing out of agreements we have reached, no matter how difficult the conditions were when they were agreed to,” Lavrov said yesterday. He made the comments to Russian reporters in New York, according to a statement on the Foreign Ministry’s Web site today.

Lavrov said the project had violated environmental regulations. There was no political motivation for the threat to cancel the permit, he said.

Russia’s Natural Resources Ministry is threatening to strip Shell of its permit for Sakhalin-2, a $20 billion oil and gas project in Russia’s Far East. President Vladimir Putin has been stepping up pressure on projects operated by Shell, Exxon Mobil Corp. and Total SA under production-sharing agreements, which give the state gets a share of the revenue only after the companies recover their costs.

The Natural Resources Ministry said two days ago it would re- submit a request to revoke the license and halt work at Sakhalin. The natural resources minister, Yuri Trutnev, signed an order last week to cancel part of the license on environmental grounds.

That order was then sent to Rostekhnadzor, the federal industrial safety service, for approval, which the ministry said was needed to bring the cancellation into force. The safety service at first said it wasn’t authorized to grant the request, then retracted the comment, saying it had been sent by mistake.

Sakhalin Energy, the project operator, hadn’t received any notification about the cancellation, Ivan Chernyakhovsky, a company spokesman, said then.

Delivery Delay

A halt in the project could delay Shell’s deliveries of 9.6 million tons a year of liquefied natural gas to countries such as Japan and Korea, which are scheduled to start in 2008. Shell said Sept. 18 that construction work was continuing.

OAO Gazprom, Russia’s gas-export monopoly, wants a 25 percent stake in Sakhalin-2. The company, 50 percent owned by the state, suspended talks to join the venture after Shell, based in The Hague, said in July 2005 that development costs had doubled from $10 billion, Gazprom spokesman Sergei Kupriyanov said Sept. 19.

The Russian company wants a piece of the project to maintain its gas export monopoly, which generates about 75 percent of its 1.3 trillion rubles ($48.7 billion) of annual gas revenue.

To contact the reporter on this story: Hannah Gardner in Moscow at hgardner3@bloomberg.net